Deutsche Mark

Deutsche Mark ueber alles

Compared with its European neighbors, West Germany is enjoying an exceptionally vigorous recovery from the industrial world's worst postwar recession. Its output of goods and services is expected to rise 4.5% this year, and inflation is running at 5.2%, one of the lowest rates in any developed country. Yet, paradoxically, the very vigor of the comeback has created an increasingly worrisome problem. The rising value of the mark against other major currencies is threatening to cut into critically important export sales by putting many German goods at a price disadvantage in world markets.

Just since January, corporate treasurers, bankers and other investors have bid up the price of the mark about 7% against an average of all major currencies. Compared with the currencies of the most economically troubled European nations, the mark's rise has been striking. So far this year, it has climbed 19.6% against the sinking Italian lira and 13% against the British pound, which last week slipped below $1.80 for the first time. Moreover, with Germany's strong recovery all but assured, any further economic disruptions in Europe this year will probably kick the value of the mark even higher.

Overall, exports, which account for almost a fourth of all German production, remain strong. In March they rose 30% over a year earlier, to $12.9 billion. But imports, made cheaper by the rising value of the mark, went up even more: 35%.

Moreover, the general import figures disguise some troubles now developing. A growing number of companies--those producing such goods as chemicals, appliances and textiles, which are almost identical to those of their foreign competitors--are being hurt by the rising cost of their exports. Grundig AG, a consumer electronics maker already fighting cheap Japanese products, reports a drastic drop in sales to Britain and Italy. BASF, the giant chemicals producer, is paring prices and profit margins to hold its international markets.

More and more German companies are trying to maintain their sales by building plants in foreign countries. BASF, which already produces chemicals in the U.S., is planning to expand its American facilities. Last month Volkswagen decided that the only way to compete effectively in the American market was to manufacture autos there. In all, German direct investment abroad last year totaled about $2.1 billion, up from $1.7 billion the year before. But the movement of industry--and jobs --out of Germany and into other countries is already stirring misgivings among powerful German labor unions. Though Germany's jobless rate is inching down, it is still at an uncomfortable level of 4.5%.

The government could try to shrink the value of the mark, by having the Bundesbank sell deutsche marks for other currencies. But with Chancellor Helmut Schmidt running for re-election in October, such a move is improbable: it would irritate voters by reducing their ability to buy foreign goods and add to European dissension. More important, such a move would anger Germany's trading partners. Anyway, it might not succeed: in these days of free exchange markets, whenever a currency weakens, speculators sell it and buy Swiss francs or deutsche marks. So Germany will probably keep on struggling with the paradox of a money so strong that it threatens to weaken the economy.

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